Still Bullish on Salesforce.com 9 comments
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Despite crossing the $1 billion annual revenue milestone, Salesforce.com’s shares plunged amidst concerns about its “slow growth” and lower-than-expected deferred revenue and guidance.
On August 20, Salesforce.com (NASDAQ: CRM) reported Q2 revenue of $263.1 million, up 49% y-o-y and 6% q-o-q. Net income was $9.9 million or $0.08 per share (up 167%). Analysts had estimated earnings of $0.08 per share on revenue of $260.5 million.
Subscription and support revenues were $239.7 million, up 50% y-o-y and 6% q-o-q. Professional services and other revenues were $23.4 million, up 41% y-o-y and 5% q-o-q. The company added 4,100 customers in the quarter; net paying customers are now approximately 47,700, up 12,400 from last year.
Dell (DELL) recently signed a three-year deal to use the company’s Force.com computing platform. Another ace up Salesforce.com’s sleeve is that it is the exclusive customer relationship management offering at Apple’s (AAPL) launch of the new iPhone 3G and App Store.
Salesforce is also developing its international presence. Nineteen percent of revenue came from Europe and 9% from Asia Pacific, while 72% came from the Americas.
Gross margin was 79%, flat with Q1 but was up by about 300 basis points from last year. During the quarter, Salesforce.com generated approximately $53 million of operating cash, up 53%.
Deferred revenue was approximately $480 million, up 49% y-o-y and 2% q-o-q but about $8 million short of Street expectations. Last quarter, it was up 59% y-o-y but down 2% q-o-q. A major reason for the Street’s high expectations is the company’s performance last year; deferred revenue grew $140 million in Q4 last year compared with just $9 million this quarter.
On August 4, Salesforce.com closed a $31.5 million deal to acquire InStranet, the leading provider of knowledge management technology for B2C call centers, in its largest acquisition to date. This acquisition is expected to affect profit. However, the acquisition also puts them in direct competition with RightNow’s (RNOW) flagship knowledge management offering.
For Q309, Salesforce.com expects revenue between $273 million and $274 million. EPS is expected to be in the range of $0.06 to $0.07 and excluding the effect of the acquisition, EPS outlook is $0.08 to $0.09. Analysts had estimated earnings of $0.09 per share on revenue of $272.4 million.
For fiscal year 2009, the company raised its guidance yet again. It now expects revenue between $1.070 billion and $1.075 billion. EPS outlook is $0.34 to $0.35, up from prior guidance of $0.33 to $0.34. However, including the effect of the InStranet acquisition of about $0.05, EPS outlook is $0.29 to $0.30. Analysts had estimated full-year earnings of $0.35 per share which hadn’t accounted for the acquisition. The stock is currently trading around $53, down about $12 or 19% since the release. On June 23, it hit a 52-week high of $75.21.
I recently placed Salesforce.com at the top of my Top 8 SaaS stocks list, and it very well deserves to be there as it is the first SaaS company to reach the $1 billion milestone. I also believe that it is the company best positioned to go an acquisition spree in the next two years and build a robust portfolio of applications that can be sold to its existing customer base profitably, and with great channel leverage.
Disclosure: None
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This article has 9 comments:
The business in itself is humming along and its fine. However, What some analyst do not realize it that.. you dont buy a shiny new slinky for $50 when you can get it for $4...
CRM is WAY overpriced and as long as they can keep up the growth and BLOW OUT wallstreet estimates... the STOCK will go up. Its been PROVEN now that they cannot do that.
Also .. explain to me why is the CEO selling 10,000 shares a DAY.. almost EVERY business day?
Maybe HE realizes as well that this is a bubble stock and the bubble is getting popped.
What will happen if blue sky clears the cloud?
***
This headline recently appeared in several places across the Web:
"Salesforce.com Passes $1 Billion Annual Revenue Mark"
THIS IS NOT TRUE. I don't know whether this material misstatement arose from media manipulation or an honest mistake, but it's genesis is most likely this 20 August 2008 press release...
"Salesforce.com Announces Record Fiscal Second Quarter Results"
tinyurl.com/5m5mea
...the subheading of which claims:
"First Ever Software as a Service Company to Exceed $1 Billion Annual Revenue Run Rate"
THIS IS NOT TRUE, EITHER. "Software as a Service" is marketing technospin for "service bureau". And payroll processing giant ADP--another service bureau--exceeded not only a "run rate" but actual annual revenues of $1 billion in 1985:
"The original outsourcer, Automatic Data Processing..."
tinyurl.com/56y5tx
Yes, SalesForce.com did report revenues of $263 million for their most recent quarter. And yes, they have raised "FY09 Revenue Guidance to $1.070 - $1.075 Billion". But NO, Salesforce.com has NOT passed the "$1 Billion Annual Revenue Mark". And despite Cheerleader/CEO Marc Benioff's effusive exuberance, some like Tiernan Ray do not share his enthusiasm:
"Salesforce's Deferred Revenue Debacle"
tinyurl.com/6oagtp
Perhaps in an effort to meet ever-inflating investor expectations--a fire they themselves have fueled--Mr. Ray notes that Wedbush Morgan analyst Michael Nemeroff "...thinks Salesforce may be pushing customers to sign more multi-year subscription contracts by lower prices, which could be hitting deferred revenue." And reading that, for me, brought on a disturbing case of Datapoint deja vu:
tinyurl.com/gk77r
"By the early 1980s, Datapoint was a Fortune 500 company. Under immense pressure to increase sales figures, its sales representatives encouraged customers to place large orders at the end of the fiscal year, permitting the company to count the orders as revenue even though the money had not been received and, in some instances, the sold equipment had not yet even been produced.... When some of the customers went broke before paying their bills, Datapoint had to reverse sales or record substantial bad debts, which caused the company to lose $800 million of its market capitalization in a matter of a few months in early 1982. The U.S. Securities and Exchange Commission (SEC) ordered Datapoint to stop this practice."
Is Salesforce.com the new ADP ... or the next Datapoint? Some say their business model is to take your watch and then bill you for the time. If so, what will happen to all those watches if blue sky clears the cloud?
Bruce Arnold, Web Design Miami Florida
www.PervasivePersuasio...
I agree their sales growth is strong but they need to be growing at a growth rate of 100% to meet their forward P/E valuations of 98!!! (this was before this earnings drop).
I am happy being short... this should be near $30 not $60.
And, yeah, MB's been using CRM stock as a cash machine for ages--old story. To the victor go the spoils as they say...
Short term technical bounce will probably turn out right. The stock almost ALWAYS bounces back sharply after a strong down day.
However, I did find it interesting that on Friday... despite a strong market day, with CRM dropping 20 points the previous few days, and an analyst's upgrade.... they only managed to rise a bit less than 3 points. The last 1/2 point was most likely due to before weekend short covering.
Cramer is a contrarian indicator. He thought AAPL was a strong buy at 200... when it dropped down to 125 he said it was a "broken stock" and you know where AAPL is now... :|
Charts are very bearish, company growth slowing, Stock is clearly overvalued fundamentally, yet the analysts are holding firm to their assessments of the company.
As bad as this stock seems to me... I am sure we will see a nice run up from these levels. Trading isnt always logical!
how long is it going to take you to accept that this bear market is not right for overpriced stocks....how is the EMC or VMW play working for you?
CRM is completely bullshit stock...its some how kept pumped up by its holders who are mostly big fund managers, who refuse to book loss and keep looking for opportunties to squeeze the shorts.
some how big muscle shorts have not entered this stock....once they enter this stock it will be in 10s-20s.
trading at a p/e > 200 in a bear market.....well i am missing something, maybe they will grow their earnings 100% Q to Q for the next 2-3 years...